Spectrum shift: costs may rise for older telcos

The 900Mhz spectrum allowed operators greater coverage using fewer towers. The older operators will have to build hundreds of new towers to ensure uniform coverage across the country, crimping profitability.

Updated: Thu, Oct 18 2012. 01 02 PM IST

New Delhi: Telecom Commission, India’s highest telecom policy-making body, has recommended that all spectrum in the 900 megahertz (MHz) band held by older operators—including Bharti Airtel Ltd, Vodafone India Ltd and Idea Cellular Ltd—be taken back and replaced with spectrum in the 1800MHz band once their licences come up for renewal, potentially leading to a significant increase in costs for them.

The affected operators, however, will have the opportunity to bid for the spectrum in an auction next year, before their renewal date (in late 2014).

The government will auction the spectrum that will become available in the first half of next year and has also kept enough spectrum in the 1800MHz band available in case telcos, affected by re-farming, fail to win the lost spectrum in the auction, department of telecommunications (DoT) officials said on condition of anonymity.

The older GSM operators reiterated their opposition to the move.

“Spectrum refarming in 900MHz band is against consumer, industry as well as the national interest and one that is discriminatory for the GSM industry,” the Cellular Operators Association of India (COAI), the primary lobby group of the GSM operators, said in a release on Wednesday.

The statement further said the move was “tantamount to forcible dislodgment of a legitimate occupant and goes against licence terms and conditions. Networks are designed around frequency bands, not the other way round”.

The operators are expected to file suits against the government on the move.

An internal DoT note to the commission had said the move would result in the network infrastructure of incumbents becoming redundant, forcing them to make substantial investments in new equipment if they failed to win back spectrum in the 900MHz auctions. The note also said that if all spectrum was re-farmed, the 900MHz auction would get maximum participation and earnings for the government.

The operators have pegged the investments becoming redundant, due to re-farming, at more than Rs.1.5 trillion.

COAI cited a study on re-farming by telecom strategy analysis firm Analysys Mason that said operators with 900MHz band will need to replace 286,590 base stations and install an additional 171,954 to provide equivalent coverage on 1800MHz.

This would result in an incremental capital expenditure of Rs.54,739 crore and incremental annual operating expenditure of Rs.11,762 crore. The Analysys Mason study further said that this additional expenditure would lead to overall tariffs rising by around 64 paise per minute and operators would have to write off their existing 900MHz assets at an estimated cost of Rs.22,310 crore.

The GSM operators have also said that the re-farming policy could impact network coverage by as much as 40% in some areas, affecting some 70-80 million subscribers.

Bharti Airtel shares ended trading on BSE at Rs.270.15, up 0.93%, while Idea Cellular closed at Rs.80.70, down 0.49%, on a day the benchmark Sensex closed at 18,610.77 points, up 0.18%.

The 900MHz spectrum is considered more efficient, thereby allowing operators greater coverage using fewer towers.

The Telecom Commission is chaired by the DoT secretary and has representation from all the major relevant ministries, as well as three full-time members.

The recommendations of the commission will be forwarded to the empowered group of ministers (eGoM) on spectrum, headed by finance minister P. Chidambaram, which is expected to meet on Thursday. However, DoT officials said the re-farming issue was unlikely to be discussed, but the one-time fee, which was decided last week, may be revisited in light of attorney general G.E. Vahanavati refusing to change his stance on the issue.

Interestingly, the reserve price for the 900MHz spectrum auction is likely to be different from what was recommended by the Telecom Regulatory Authority of India (Trai) in 2010.

Trai had recommended the reserve price be twice that discovered in the 1800MHz auction, which is slated to begin on 12 November.

The Association of Unified Telecom Service Providers of India (AUSPI), the lobby group for CDMA and dual-technology operators, welcomed the re-farming decision, calling it “a right step in the direction of creating the level play field between incumbent GSM operators and new GSM operators”.

“Most of the 900MHz spectrum is held by three private operators, i.e. Bharti Airtel, Vodafone and Idea, for almost a decade without making any additional payment and hence they are likely to complain bitterly about this decision, which we are confident will be confirmed by eGoM as it would provide an equal opportunity to all operators (including the incumbents) to acquire it through auctions in technically optimum chunks rather than a few operators hoarding it for perpetuating their monopoly,” the AUSPI statement said.

Analysts said the move would hit operators, lead to multiple court cases and increasing lack of clarity over policy.

“The lack of clarity and the mess of legal and regulatory entanglements has made the Indian telecom sector an investment risk for most,” a Mumbai-based telecom analyst with a multinational brokerage firm said, requesting anonymity.